Ninety Nine Percent of Restaurants Survive Recession

Nation’s Restaurant News released a news article this week that has had my wheels turning ever since. The article stated that 1% of restaurants had closed, over 5,000 restaurants out of business.

The article cites extremely credible sources and goes on to say that of those that closed more than 1/2 were independent restaurants which would mean the rest were “chain”. I am not disputing any of their facts, I do not have the resources to do that, nor do I have enough toes and fingers to count that high. What I am doing is trying to comprehend this article and find the lessons that can be learned from it. The unedited article is attached.

Here is my commentary, or as I like to say my “PPP” (proverbial pebble in the pond):

NINETYNINE PERCENT of restaurants are still in business after the worst recession in my entire life and I haven’t been 29 in a while! NINETYNINE PERCENT, that’s what the headline should have said, their facts say that!

How many industries can say the same thing? Yeah, I know payday loans places and pawn shops are probably off the chart, but my point is that I am sure that there are industries that have grown in spite of the economy and others that have been created as a result of it, but let’s talk restaurant.

The restaurant industry is doing well in spite of the economy and will continue to do well for as far as the eye can see. There will be winners, and there will be losers, that’s true of any industry. Many that are closed have cited that they were victims of the economy and I completely understand that there are regions around the country have been harder hit than others. Additionally, the gulf oil disaster could create more closings and I am sensitive to all the restaurants that have been affected, but I am extremely hopeful that all the restaurants in that area will survive. I also regret that of the 5,000 restaurants that have closed because that means that people’s lives have been adversely affected.

As for the winners and the losers, are they not all playing on the same field? Isn’t the economy like a frozen football field with a chill factor of -3? Two teams hit the field and only one is the winner and one is the loser, are they not playing under the same conditions?

For restaurants their playing field is the same and there have always been winners and losers in all types of economies. In our current economy, there are a lot of restaurants that are doing incredibly well in customer counts, guest check averages, same store sales, and profits. Eating in restaurants is a way of life in our country and those restaurants that play the game the best will continue to do well, those that don’t won’t!

In most industries there are what we like to call “Rockstars”, those companies that clearly outshine all the other players in the space. There are “Rockstars” in the restaurant industry and they probably only account for 1% of all restaurants, about the same number that closed. Kind of like golf isn’t it? Less than 1% of all golfers make the PGA. In the racing business far less than 1% of all drivers compete in Sprint Cup! What is most ironic about the winners in professional golf and Nascar is that the winners only beat their next closest competitors by less than 1%. One stroke in golf and many times less than a tenth of a second in racing.

It probably can’t be disputed that talent plays a huge part in the success of golfers, racers, and restaurateurs but talent by itself doesn’t decide the winners, execution does. Execution of processes and strategies makes the difference, the ninetynine percent of restaurants are executing well enough to stay in the game and the top 1% are executing flawlessly. If you are not in the top 1% of the restaurant business and you want to be it would be easy to say that all you have to do is do what the “Rockstars” do. It’s not that simple and most importantly it’s not just marketing so please don’t buy into any ‘quick fixes’, they won’t work! If you are one golf stroke away from making the cut at the US Open, or 1/10th of a second from qualifying for the Daytona 500 no amount of marketing will get you there, execution will.

How do those with the talent and the skill to be on the bubble break through?

ReCount takes stock of domestic commercial restaurant locations twice a year, in the spring and fall. In the fall of 2009, the industry’s unit count contracted 0.3 percent, or by 1,652 locations. The spring 2009 numbers were worse, with the industry losing a little more than 4,000 restaurants, comprising a 1-percent decrease in total overall locations.

For the 12 months ended March 31, the number of quick-service restaurants declined by 2,521 locations and the number of full-service restaurants fell by 2,683 units, resulting in a 1-percent decrease overall for both segments.

Within those sectors, independents fared worse than chain competitors, the NPD found. In fast food, chains lost only 164 net locations to remain flat for the 12-month period, while independent quick-service restaurants lost 2,685 net units, a 3-percent decrease for that time period.

Independent and chain full-service restaurants both logged 1-percent declines in unit counts for the 12-month time frame, with independent restaurants shedding 2,408 total units and chains dropping 275 net locations.

“It’s been a difficult time for the restaurant industry, with customer traffic down over the past year,” said Greg Starzynski, director of product development for NPD’s foodservice division. “The unit losses we’re seeing in our latest census are a reflection of the weakness in the industry with the greatest impact on the independent restaurant operators.”

NPD’s CREST research service reported that visits to restaurants in the United States declined by 3 percent for the 12 months ended in May 2010. Consumer spending at restaurants fell 1 percent in that same period, the first decline in dollars the firm has reported since it began tracking foodservice industry sales in 1976, NPD said.

Independent restaurants have suffered sales and traffic declines as prolonged high unemployment has weakened consumer spending in many areas of the country, creating less revenue from which operators can fund crucial investments in marketing or equipment.

The relative stability of overall chain restaurant locations reflects that, despite closures by brands like ESPN Zone, Fuddruckers and Uno Chicago Grill, other concepts are picking up the slack.

Five Guys Burgers and Fries, for example, is looking to expand outside the United States because it has sold out its development rights in the United States and Canada. According to Nation’s Restaurant News’ Top 100 report, Five Guys opened 171 locations in 2009. The chain reported last week that its newest restaurant, in Sacramento, Calif., brought its total system to 632 locations.

Wingstop, which recently reported its 28th consecutive quarter of increased same-store sales, plans to add 50 restaurants in 2010. The chain’s growth plans were a major draw to its new corporate parent, Roark Capital Group, which acquired the 447-unit chain in April.

Another brand, 88-unit Buca di Beppo, has announced plans to resume growth with four new restaurants in the Boston area. That chain had closed underperforming units after a sale to Planet Hollywood International in late 2008.

Good analysis and interesting take on the percentages. People often forget that statistics can be always presented in a way to support just about any point of view. I would love to know what percentage of restaurants would have closed if there were no recession. I bet that it would be still in the realm of 3 to 4 thousand. And, as you have mentioned, those would be still the same restaurants (the ones that lack execution and need some serious coaching). So they way I look at it, these restaurants did not close because of the recession. The rather closed SOONER because of the recession. The recession serves merely as an accelerator to weed out the ones that will succeed from the ones that will fail anyhow.

http://foodsho.wordpress.com foodsho

Oto, Thank you for your very insightful comments. You sound like someone who “gets it”. Best wishes in all of your endeavors!

http://restaurantmanagersecrets.com RoundTable Guy A

As much as I love disputing and ruffling feathers I find myself at a loss. You glass half full with PPP is dead on! Great positive take. We Gulf Coasters appreciate your concerns as well. Rock on Mark.

http://foodsho.wordpress.com foodsho

Roundtable Guys Rock! Thank you for your comments, they are greatly appreciated.